Want your favorite restaurant to stay open? Offer a loan.

If you want to help a small business in your area, one way is to spend money there regularly. Another way is to offer a no-interest loan so the company can keep growing.

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The latter option is possible with Community Sourced Capital, a startup based in Seattle. It’s loaned out almost $700,000 so far, all of it sourced from locally minded people who want to see their communities prosper.

“There’s an aspect of real generosity in the system where people need some connection to the businesses and have a sense they’re creating something of value to themselves as well as the world,” says Rachel Maxwell, CSC’s cofounder.

CSC is similar to crowdfunding, except the businesses are already established and you’re probably not financing a whizzbang technology. About 70% of companies on the site are in food and drink, and 90% of their patrons frequent the businesses already, Maxwell says.

When you sign up, you become a “Squareholder,” with each “Square” worth $50. Buy five Squares in a company, and you give over $250. The businesses repay the money, with CSC taking both an initiation fee and monthly fees.

Maxwell says some of the companies could get financing through bank loans, but some couldn’t. Banks have been reducing their small-business lending since the recession, leaving the way open for new types of financial startups. “The banks have a hard time making loans under $50,000 for a wide variety of reasons. The smallest loans have not recovered as other business lending has recovered,” she says.

Initially, CSC chose to go interest-free to skirt regulations on interest-bearing loans, but then it saw the value in no-interest arrangements. “We wanted to deploy something easily and quickly right away, and this dances outside the regulatory world. But then we found this put people in a very different place with their money,” Maxwell says. “They’re not thinking about whether 3% or 4% or 10% is the right amount to get out of their investment and they’re not making a charitable donation that’s so often a hierarchical experience. Instead, they’re doing something good, getting something they want, and getting paid back.”

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CSC is focused on the Pacific Northwest and wants to “go deeper” there before moving on to the rest of the country. That includes working with local banks and government agencies to match financial backers to viable projects. This October, together with Washington’s Department of Commerce, CSC is planning campaigns for businesses in all of the state’s 39 counties. “We want to build relationships and understand and learn and be able to replicate them across the country,” Maxwell says.

We’ve seen before how “social finance” can fill in for the market failures of traditional lending. There are many people out there willing to suffer lower returns if the money can be used for social benefit. The question is how to link those investors with the local businesses. Community Sourced Capital’s Squareholder model is one way.

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About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.